Cromwell Property Group Limited

CMW Details

Proportional Offer from ARA Real Estate Investors:  Cromwell Property Group Limited (ASX: CMW) is a real estate investment and management firm with a property portfolio in Australia and AUM in New Zealand, Australia, and Europe. As on 16 October 2020, the market capitalization of the company stood at ~$2.35 billion. The company has recently announced ARA Real Estate Investors 28 Limited, a subsidiary of ARA Asset Management Holdings Pte. Ltd has extended its offer to acquire 29% of the securities in Cromwell Property Group from 9 October 2020 to 2 November 2020.

Settlement of Logistics Assets: The company, in association with IGIS Asset Management has settled for 7 DHL logistics assets in Italy for A$83.3 million. This settlement is to be funded from a new five-year loan facility of $48.7 million, IGIS equity commitments and drawdown of existing Cromwell facilities. The company is aiming a stake of 20% in the Fund.

Growth in Operating Profit, EBITDA, and Statutory Profit: The company reported 27% increase in Operating Profit to $221.2 million in FY20 as compared to $172.4 million in FY19. It was due to improved results from all the 3 key segments – direct property, indirect property investment and Funds & Assets Under Management and higher finance Income. Its EBITDA increased from $257.6 million in FY19 to $327.3 million in FY20 due to increase in total AUM and total revenue & other income.

FY20 Financial Highlights (Source: Company Reports)

Outlook:  The company seems optimistic about its portfolio and clientele strength going forward. Despite the challenges from the global pandemic, it anticipates opportunities to build and grow its segment in the medium term. It has provided distribution outlook for FY21 and expects to distribute 7.50 cents per share subject to change in macro conditions and government’s response.

COVID-19 Impact on Portfolio: The Group’s direct portfolio was relatively less impacted by COVID-19, whereas its retail funds management portfolio shrunk slightly to $2.2 billion in FY20 from $2.3 billion in FY19. Owing to certain divestments by the company, its balance of co-investments has reduced from $28.4 million in FY19 to $12.9 million in FY20.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: With most of the company’s portfolio not severely impacted by COVID-19, the company’s liquidity position stands decent with Cash and undrawn bank facilities at $667 million in FY20.  The stock of CMW gave a positive return of ~8.68% in the past six month and a positive return of 0.568% in the past one month. The stock is trading close to 52-weeks’ low levels of $0.675, proffering a decent opportunity for the investors to enter the market. The stock of CMW has a support level of ~$0.84 and a resistance level of ~$0.916. We have valued the stock using the EV/EBITDA multiple based relative valuation and have arrived at a target price of lower double-digit upside (in % terms). Considering the current trading levels, decent returns in the past six months, valuation, and positive long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of ~$0.885, down by 1.667% on 16 October 2020.

Charter Hall Retail REIT

CQR Details

Decent Increase in Statutory profit: Charter Hall Retail REIT (ASX: CQR) is engaged in the business of investing in convenience retail properties in Australia. As on 16 October 2020, the market capitalization of the company stood at ~$2.08 billion. The company reported a decline in statutory profit from $53.1 million in FY19 to $44.2 million in FY20. The Operating earnings stood at an increased level of $142.7 million in FY20 from as compared to $128 million in FY19 due to the firm’s continued asset recycling strategy. The Board of Directors declared an interim dividend of 14.52 cents per share and a final dividend of 10 cents per share. The company has made an invetsment in BP portfolio to acquire a 47.5% interest in a portfolio of 225 long WALE convenience stores. The company generated net cash flow from operaing activities of $132.9 million in FY20 as compared to $113.8 million in FY19. Its balance of Cash and Cash equivalents stands at $80.5 million for FY20 as compared to $4.8 million in FY19.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company has managed to reduce its finance costs owing to favorable low interest rate conditions. It also repaid its debt through raise of equity capital. The company seems poised for a better year given its portfolio strength, higher sales from company’s major and essential services tenants, ease of government restrictions and improved foot traffic at stores.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of CQR gave a positive return of 6.5089% in the past six months and of 2.27% in the last one month. The stock is trading at 52-weeks’ low levels of $2.680 and thus retains potential for further growth. On a Technical front, the stock of CQR has a support level of ~$3.345 and a resistance level of ~$3.845. We have valued the stock using the EV/EBITDA multiple based relative valuation and have arrived at a target price of lower double-digit upside (in percentage terms). Considering the current trading levels, good returns in the past six months and softer market conditions, we suggest investors to enter the market and give a ’Buy’ rating on the stock at the current market price of $3.60, down by 1.370% on 16 October 2020.

CQR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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